SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ] Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-12
ClearOne Communications, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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CLEARONE COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 14, 2002
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of ClearOne
Communications, Inc. (the "Company"), a Utah Corporation, will be held on
November 26, 2002, at 3:15 P.M. MST, at the Company's corporate offices located
at 1825 Research Way, Salt Lake City, Utah 84119 for the following purposes:
1. To elect five members of the Company's Board of Directors;
2. To ratify the appointment of the Company's independent auditors; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors recommends that an
affirmative vote be cast in favor of all nominees and for each of the proposals
listed in the proxy card.
Only the shareholders of record at the close of business on October 1, 2002
are entitled to notice of and to vote at the meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder has previously returned
a proxy.
FOR THE BOARD OF DIRECTORS
/s/ Frances M. Flood
------------------------------------------
Frances M. Flood, President and
Chief Executive Officer
CLEARONE COMMUNICATIONS, INC.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
ClearOne Communications, Inc. (the "Company") for use at the Company's Annual
Meeting of Shareholders ("Annual Meeting") to be held November 26, 2002 at 3:15
P.M. MST, or at any postponement or adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Shareholders.
The Annual Meeting will be held at the above date and time at the Company's
offices located at 1825 Research Way, Salt Lake City, Utah 84119. The telephone
number at that address is (801) 975-7200.
These proxy solicitation materials were first mailed on or about October
14, 2002 to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date and Shares Outstanding
Shareholders of record at the close of business on October 1, 2002 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. On
the Record Date, 11,197,580 shares of Common Stock were issued and outstanding.
Each shareholder will be entitled to one vote for each share of Common Stock
held on the record date.
Voting of Proxies
By completing and returning the accompanying proxy, the shareholder
authorizes Frances M. Flood, President and CEO, and Susie Strohm, Vice President
and CFO, as designated on the face of the proxy, to vote all shares for the
shareholder. All proxies that are properly signed and dated will be voted as the
shareholder directs. If no direction is given, executed proxies will be voted
FOR each of the nominees and listed proposals.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to Susie Strohm, Secretary of
the Company, a written notice of revocation, a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
Solicitation
The cost of this solicitation will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers, and regular employees, without additional
compensation, personally or by telephone, facsimile, or telegram.
Deadline for Receipt of Shareholder Proposals
The Company currently anticipates the Annual Meeting in 2003 will be held
on or about November 15, 2003. Any shareholder desiring to submit a proposal for
inclusion in the Company's proxy statement and form of proxy for the Company's
2003 Annual Meeting of Shareholders should transmit such proposal to the
Secretary of the Company on or before June 11, 2003. For any other proposal that
a shareholder wishes to have considered at the Company's 2003 Annual Meeting,
the shareholder must notify the Company of the proposal on or before August 27,
2003. Proposals for which the Company receives notice after that time will be
considered untimely, and the persons serving as proxies will have discretionary
authority to vote on such matter at the meeting.
Vote Required for Approval
A quorum of the shares of the Company must be present at the Annual Meeting
in order for the shareholders to take official action. Under Utah law and the
Articles of Incorporation and Bylaws of the Company, a quorum will exist if a
majority of the shares issued by the Company and entitled to vote on a matter at
the Annual Meeting are present, in person or by proxy. Abstentions and broker
non-votes will be considered present at the Annual Meeting and will be counted
for purposes of determining whether a quorum exists, but abstentions and broker
non-votes will not be counted for purposes of determining the vote on any matter
currently proposed for action at the Annual Meeting. The election of directors
will be determined by plurality vote. The Board of Directors recommends that an
affirmative vote be cast in favor of all nominees and for each of the proposals
listed in the proxy card.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
our common stock as of August 30, 2002 by (i) each person known to us to be the
beneficial owner of more than 5% of our outstanding common stock, (ii) each
director, (iii) the named executive officers, and (iv) all of our executive
officers and directors as a group. Each person has sole investment and voting
power with respect to the shares indicated, subject to community property laws
where applicable, except as otherwise indicated below. The address for each
beneficial owner is in care of ClearOne Communications, Inc., 1825 Research Way,
Salt Lake City, Utah 84119.
2
Amount of Percentage
Names of Beneficial Owners Beneficial Ownership of Class 1
-------------------------- -------------------- ----------
Edward Dallin Bagley 2 1,743,618 14.9%
Frances M. Flood 3 330,943 2.8%
Susie Strohm 4 190,968 1.6%
Brad R. Baldwin 5 107,666 0.9%
Randall J. Wichinski 6 39,961 0.3%
David J. Wiener 7 24,750 0.2%
Harry Spielberg 8 10,000 0.1%
Timothy J. Morrison 9 9,336 0.1%
Angelina Beitia 10 4,804 0.0%
Michael A. Peirce 0 0.0%
Directors and Executive Officers
as a Group (11 people) 3 to 11 2,465,708 21.0%
1 For each individual and group included in the table, the calculation of
percentage of beneficial ownership is based on 11,195,619 shares of common
stock outstanding as of August 30, 2002 and shares of common stock that
could be acquired by the individual group within 60 days of August 30,
2002, upon the exercise of options or otherwise.
2 Includes: (a) options to purchase 10,000 shares that are exercisable within
60 days after August 30, 2002; and (b) 312,333 shares held in the Bagley
Family Revocable Trust, of which Mr. Bagley is co-trustee. Excludes 50
shares owned by one of Mr. Bagley's daughters who is not a member of his
household. Mr. Bagley disclaims beneficial ownership of such 50 shares and
50% of the shares owned by the Bagley Family Revocable Trust.
3 Includes options to purchase 271,434 shares that are exercisable within 60
days after August 30, 2002.
4 Includes options to purchase 159,464 shares that are exercisable within 60
days after August 30, 2002.
5 Includes 88,666 shares held in the Baldwin Family Trust; 9,000 shares owned
directly that are held in an IRA under the name of Mr. Baldwin; and options
to purchase 10,000 shares that are exercisable within 60 days after August
30, 2002.
6 Includes options to purchase 33,875 shares that are exercisable within 60
days after August 30, 2002.
7 Includes options to purchase 18,750 shares that are exercisable within 60
days after August 30, 2002.
8 Includes options to purchase 10,000 shares that are exercisable within 60
days after August 30, 2002.
3
9 Includes options to purchase 8,750 shares that are exercisable within 60
days after August 30, 2002.
10 Includes options to purchase 4,375 shares that are exercisable within 60
days after August 30, 2002.
11 Includes additional options to purchase 3,500 shares that are exercisable
within 60 days after August 30, 2002 by one executive officer who is not a
named executive officer.
4
PROPOSAL ONE -- ELECTION OF DIRECTORS
The Company had seven directors as of October 1, 2002. Five are nominated
for re-election at the Annual Meeting to serve until the next Annual Meeting of
Shareholders or until their respective successors are duly elected and
qualified. Unless otherwise instructed, the proxies will be voted for the
election of the five nominees named below. In the event any nominee is unable to
serve, the proxies will be voted for a substitute nominee, if any, to be
designated by the Board of Directors. The Board of Directors has no reason to
believe any nominee will be unavailable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES NAMED BELOW TO THE BOARD OF DIRECTORS.
Nominees
The following individuals are currently directors of the Company and are
nominated for re-election as directors of the Company:
Position with
Name Age ClearOne Communications, Inc.
---- --- -----------------------------
Edward Dallin Bagley 63 Director
Brad R. Baldwin 46 Director
Frances M. Flood 45 Chairman of the Board of Directors,
Chief Executive Officer and
President
Harry Spielberg 50 Director
David Wiener 43 Director
Edward Dallin Bagley joined us as a director in April 1994. Mr. Bagley also
served as a director from April 1987 to July 1991. Mr. Bagley currently serves
as a director of Tunex International, NESCO, Inc., and Buyers Online.com. Mr.
Bagley has been licensed to practice law in Utah since 1965 and holds a juris
doctorate degree from the University of Utah College of Law.
Brad R. Baldwin joined us as a director in 1988. He is an attorney licensed
to practice in Utah. Mr. Baldwin is engaged in the commercial real estate
business with Colliers Commerce CRG in Salt Lake City. From October 1, 1994 to
January 30, 2000, Mr. Baldwin served as president and chief executive officer of
Bank One, Utah, a commercial bank headquartered in Salt Lake City, Utah. Mr.
Baldwin holds a juris doctorate degree from the University of Washington.
5
Frances M. Flood became one of our Directors in June of 1998. Ms. Flood
first joined us in October 1996 as vice-president of sales and marketing and was
named president in December 1997, chief executive officer in June 1998 and
chairman of the board in November 2000. Prior to joining us, Ms. Flood was area
director of sales and marketing for Ernst & Young, LLP, an international
accounting and consulting firm. Ms. Flood has over 25 years experience in sales,
marketing, change management, international business and finance. She is
currently a director of Nevada Chemicals. She holds a bachelor of
science/bachelor of arts degree in banking and finance from Thomas Edison State
College.
Harry Spielberg joined us as a director in January 2001. Since January
1996, Mr. Spielberg has been the director of Cosentini Information Technologies'
Audiovisual Group, a division of the consulting engineering firm, Cosentini
Associates. Prior to 1996, Mr. Spielberg served as vice president, Engineering
for Media Facilities Corp. and Barsky & Associates. Mr. Spielberg received a
bachelor's degree in psychology from the State University of New York.
David Wiener joined us as a director in January 2000. Mr. Wiener has served
as President and chief executive officer of SoundTube Entertainment, Inc., a
manufacturer of innovative commercial and consumer audio speakers, since 1995.
SoundTube Entertainment is a division of David Wiener Ventures, a product,
fashion, and image development company founded by Mr. Wiener in 1982. Mr. Wiener
received his bachelor's degree in engineering, aerodynamics and art from
Hampshire College in Amherst, Massachusetts.
Director Compensation and Committees
All of our directors serve until their successors are elected and have
qualified to serve as directors. We pay each director who is not our employee
$650 per month for his services to us as a director. Directors who are also
employed by us do not receive compensation for their services as directors.
Our board of directors has two committees: the audit and compensation
committees. The audit committee is currently composed of Edward Dallin Bagley,
Brad R. Baldwin, Harry Spielberg and David Wiener. With the exception of Mr.
Bagley, the directors who serve on the audit committee are all "independent" for
purposes of the rules of the National Association of Securities Dealers. That
is, the Board of Directors has determined that none of the audit committee
members, apart from Mr. Bagley, has a relationship to the Company that would
interfere with that person's exercise of independent judgment in carrying out
the responsibilities of a director. The Board has determined that Mr. Bagley, as
owner of 14.9% of the Company's common stock, is not independent. However,
because of Mr. Bagley's financial experience and knowledge of the Company and
its operations, the Board of Directors has determined that his inclusion on the
audit committee is in the best interests of the Company and its shareholders.
The compensation committee is currently composed of Edward Dallin Bagley, Brad
R. Baldwin, Michael A. Peirce, Harry Spielberg and David Wiener. None of the
members of the compensation committee is a current or former employee of the
company or any of its subsidiaries.
6
The audit committee is authorized to:
(1) review our auditors' proposals regarding the conduct of annual audits
and quarterly reviews,
(2) recommend the engagement or discharge of our auditors,
(3) review recommendations of our auditors concerning accounting
principles and the adequacy of our internal controls and accounting
procedures and practices,
(4) review the scope of the annual audit and quarterly reviews,
(5) approve or disapprove each professional service or type of service
other than standard auditing services to be provided by our auditors,
and
(6) review and discuss the audited financial statements with the auditors.
The Board of Directors has adopted a written charter for the audit
committee setting out the functions the Committee is to perform. A copy of the
charter was attached to the proxy statement for the 2001 Annual Shareholders'
meeting.
The compensation committee makes recommendations to the Board of Directors
regarding remuneration of our executive officers and directors and administers
the incentive plans for our directors, officers and key employees.
Meetings of the Board of Directors and Committees
The Board of Directors held nine meetings during fiscal 2002. The audit
committee held two meetings during fiscal 2002. The compensation committee held
one meeting during fiscal 2002. During fiscal 2002, each director attended at
least 75% of the meetings held by the Board of Directors and the committees of
which he or she was a member.
7
Report of the Audit Committee
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the system of
internal control. In fulfilling its oversight responsibilities, the Committee
reviewed and discussed the audited financial statements in the Annual Report
with management including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Company including the matters in the written disclosure and the letter required
by the Independence Standards Board Standard No. 1 (Independence Discussions
with Audit Committee) and considered the compatibility of nonaudit services with
the auditors' independence. The Committee also discussed with the independent
auditors any matters required to be discussed by Statement on Auditing Standards
No. 61 (Communications with Audit Committees).
The Committee discussed with the Company's independent auditors the overall
scope and plans for their audits. The Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal control, and the
overall quality of the Company's financial reporting.
With the exception of Mr. Bagley, each member of the Audit Committee is an
independent director as defined in Rule 4200(a)(14) of the National Association
of Securities Dealers listing standards. That is, the Board of Directors has
determined that none of the audit committee members, apart from Mr. Bagley, has
a relationship to the Company that would interfere with that person's exercise
of independent judgment in carrying out the responsibilities of a director. The
Board has determined that Mr. Bagley, as owner of 14.9% of the Company's common
stock, is not independent. However, because of Mr. Bagley's financial experience
and knowledge of the Company and its operations, the Board of Directors has
determined that his inclusion on the audit committee is in the best interests of
the Company and its shareholders.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended June 30, 2002 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors.
8
Respectfully submitted by the members of the Audit Committee.
Edward Dallin Bagley
Brad R. Baldwin
Harry Spielberg
David Wiener
9
Executive Officers
Our executive officers as of October 1, 2002 are as follows:
Name Age Position
---- --- --------
Frances M. Flood 46 President and Chief Executive Officer
Angelina Beitia 39 Vice President of Marketing
DeLonie N. Call 49 Vice President of Human Resources
Timothy J. Morrison 45 Vice President of Sales
Gregory L. Rand 40 Chief Operations Officer
Susie Strohm 42 Vice President and Chief Financial Officer
For the biography of Ms. Flood, see "Directors."
Angelina Beitia joined us in March 2001 and was named vice president of
marketing in December 2001. She is responsible for the development and execution
of our marketing strategy and programs. Ms. Beitia was senior director of
worldwide marketing communications for Iomega Corp. from July 1997 to July 2000
and served as vice president of consumer marketing of International Data Group
from April 1993 to June 1997. Ms. Beitia graduated from Lewis & Clark College
with a bachelor's degree in both business administration and communications.
DeLonie Call joined us in October 2001 with nearly 15 years experience in
management and executive-level human resources positions. She currently serves
as vice president of human resources. From April 2000 to September 2001, Ms.
Call was director of human resources for Iomega Corp. and from June 1996 to
November 2000 she was vice president of human resources for Vitrex Corp., a
start-up technology company. Ms. Call graduated from Weber State University with
a bachelor's degree in business management and economics.
Timothy J. Morrison joined us in July 2001 as vice president of sales. He
has nearly 20 years of direct sales, marketing and top-level management
experience. Mr. Morrison served as general manager of the privately held Baldwin
Steel Co. from August 2000 to June 2001 and as president and chief executive
officer of Leeco Steel Products, Inc., a privately held steel company from March
1999 to August 2000. In addition, he held various management and sales positions
with Olympic Steel from January 1997 to March 1999 and Bethlehem Steel Corp.,
one of the nation's largest integrated steel companies, from July 1979 to
January 1997. Mr. Morrison graduated from Fordham University with a bachelor's
degree in communications.
Gregory L. Rand joined us in August 2002 as our chief operations officer.
He is responsible for all of our operations, including engineering,
manufacturing, purchasing, information technology and quality assurance. Prior
to joining us, Mr. Rand held various management positions for Delta Air Lines in
Atlanta, Georgia, including serving on the Delta pilot contract negotiating
team, special assistant to vice president - flight operations, and coordinator -
operations resource control for Delta Express. He graduated from the University
of San Diego with a bachelor's degree and received his master's degree in
business administration from the University of North Florida.
10
Susie Strohm joined us in February 1996 as our controller and was named
chief financial officer in 1998. She is responsible for all of our accounting
and financial planning, and financial and management reporting. Prior to joining
us, Ms. Strohm was the controller for Newspaper Agency Corporation in Salt Lake
City, Utah. She graduated from the University of Utah with a bachelor's degree
in accounting, and received her master's degree in business administration from
Westminster College.
Executive Compensation
Summary Compensation
The following table sets forth, for each of the last three fiscal years,
the compensation of our chief executive officer and the other four most highly
compensated executive officers and Tracy Bathurst and Eugene W. Kuntz, Jr. whose
total salary and bonus for fiscal 2002 exceeded $100,000, for services rendered
in all capacities during such fiscal years. We refer to these executive officers
as the named executive officers.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ------------------------
Awards Payouts
---------- -------
Securities
Other Under- All
Annual lying Other
Compen- Options Compen-
Name and Position Year Salary Bonus sation /SARS sation1
----------------- ---- ------ ----- ------ ----- -------
Frances M. Flood Fiscal
President and Chief 2002 $179,615 $76,006 None 100,000 $2,148
Executive Officer
Fiscal
2001 $160,000 $58,400 None None $2,056
Fiscal
2000 $160,333 $73,700 None 50,000 $1,802
Tracy Bathurst Fiscal
Former Vice President2 2002 $102,497 $5,000 $165,858 None $2,000
Fiscal
2001 $100,000 $18,500 None None $1,850
Fiscal
2000 $93,073 $5,000 None 50,000 $1,765
Angelina Beitia Fiscal
Vice President3 2002 $120,466 $5,000 None None None
11
Eugene W. Kuntz, Jr. Fiscal
Former Vice President4 2002 $107,004 $10,000 $39,258 None None
Fiscal
2001 $92,502 $9,500 None 30,000 None
Timothy Morrison Fiscal
Vice President5 2002 $159,808 $24,500 None 60,000 None
Susie Strohm Fiscal
Vice President and 2002 $114,615 $30,505 None None $2,108
Chief Financial Officer6
Fiscal
2001 $110,000 $37,000 None None $2,316
Fiscal
2000 $100,167 $55,538 None 50,000 $1,976
Randall J. Wichinski Fiscal
Vice President and 2002 $112,673 $4,500 None 100,000 None
Chief Financial Officer7
------------
1 These amounts reflect our contributions to our deferred compensation plan
(401(k) plan) on behalf of the named executive officers.
2 Mr. Bathurst is no longer an executive officer.
3 Ms. Beitia became a named executive officer in fiscal 2002.
4 Mr. Kuntz ended his employment and position as an executive officer on May
1, 2002.
5 Mr. Morrison became a named executive officer in fiscal 2002.
6 Ms. Strohm was named Vice President and Chief Financial Officer on
September 26, 2002.
7 Mr. Wichinski ended his employment and position as an executive officer on
September 27, 2002.
Stock Options
The following table sets forth the stock option grants made to the named
executive officers for fiscal 2002. We did not grant any stock appreciation
rights, or SARs, to the named executive officers during fiscal 2002.
Each option granted during fiscal 2002 to the named executive officers was
granted under the 1998 Plan. An option granted under the 1998 Plan is an option
to purchase shares of our common stock and is either a nonqualified or incentive
stock option under applicable IRS regulations. Certain options granted to named
executive officers vest in full after completing six years of service with us,
and others vest in full after completing 9.75 years of service with us, except
that up to one-fifth of the shares subject to each option may vest upon
completion of each year of service with us if specified earnings per share goals
established for the year are achieved.
In the event of specified corporate transactions, including change in
control events designated in the 1998 Plan, our board of directors has the
authority to automatically accelerate the vesting of each outstanding option
whether or not the outstanding option is assumed or substituted in connection
with the corporate transaction or change in control event.
12
The exercise price per share of each option granted was equal to the fair
market value of the underlying shares of common stock on the date of grant.
Potential realizable values are computed by (1) multiplying the number of
shares of common stock subject to a given option, by the per share assumed stock
value compounded at the annual 5% or 10% appreciation rate shown in the table
for the entire ten-year term of the option and (2) subtracting from that result
the aggregate option exercise price. The 5% and 10% assumed annual rates of
stock price appreciation are mandated by the rules of the SEC and do not
represent our estimate or projection of the future prices of our common stock.
Actual gains, if any, on stock option exercises are dependent on our future
financial performance, overall market conditions, and the named executive
officer's continued employment through the vesting periods. The actual value
realized may be greater or less than the potential realizable value set forth in
the table.
OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 2002
(INDIVIDUAL GRANTS)
Potential Realizable
Value of Assumed
Annual Rate of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted Exercise Option Term
Options to Employees or Base Expiration -----------
Name and Position Granted (#) in Fiscal Year1 Price ($/Sh) Date 5%($) 10%($)
----------------- ----------- --------------- ------------ ---- ----- ------
Frances Flood 100,000 27% $11.39 08/06/2011 $809,077 $2,110,700
Tracy Bathurst - 0% - - $0 $0
Angelina Beitia - 0% - - $0 $0
Eugene W. Kuntz, Jr. - 0% - - $0 $0
Timothy J. Morrison 50,000 14% $10.55 07/02/2011 $374,704 $977,519
10,000 3% $20.45 11/14/2011 $145,264 $378,962
Susie Strohm - 0% - - $0 $0
Randall Wichinski 100,000 27% $12.00 08/23/2011 $852,407 $2,223,740
------------
1 Based on aggregate of 366,908 shares subject to options granted to our
employees in 2002, including the named executive officers.
Aggregated Stock Option Exercises
The following table sets forth the aggregated stock options exercised by
the named executive officers in fiscal 2002 and the year-end value in-the-money
of unexercised options:
13
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED JUNE 30, 2002
AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at FY-End (#) at FY-End ($)
Shares
Acquired Value Exercisable/ Exercisable/
Name and Position on Exercise (#) Realized ($)1 Unexercisable Unexercisable2
----------------- --------------- ------------- ------------- --------------
Frances M. Flood 5,900 $75,745 271,434/145,000 $3,270,560/$601,060
Tracy Bathurst 10,000 $165,858 29,849/60,151 $247,660/$150,391
Angelina Beitia 0 $0 4,375/20,625 $16,756/$78,994
Eugene W. Kuntz, Jr. 15,000 $39,258 0/0 $0/$0
Timothy J. Morrison 0 $0 8,750/51,250 $29,260/$179,740
Susie Strohm 0 $0 159,464/59,000 $1,849,267/$313,820
Randall J. Wichinski 0 $0 33,875/91,125 $58,729/$232,521
------------
1 Based upon the fair market value of the purchased shares on the exercise
date less the option exercise price paid for such shares.
2 Based on the market price of $14.73 per share, which was the closing
selling price of our common stock on the Nasdaq National Market on the last
day of our fiscal 2002, less the option exercise price payable per share.
Employment and Change in Control Arrangements with Named Executive Officers
As of the end of our 2002 fiscal year, none of the named executive officers
was party to an employment or severance agreement with us, and each named
executive officer's employment was "at-will," permitting either the Company or
each officer to terminate his or her employment for any reason or for no reason.
Under the 1998 Plan, our board of directors has the authority to
automatically accelerate the vesting of each outstanding option granted to a
named executive officer under the 1998 Plan in the event of specified corporate
transactions, including change in control events designated in the 1998 Plan,
whether or not the outstanding option is assumed or substituted in connection
with the corporate transaction or change in control event.
14
COMPENSATION COMMITTEE REPORT
The Compensation Committee has provided the following report:
Committee's Responsibilities - The Committee sets the overall compensation
principles for the Company, subject to annual review. In consultation with the
CEO, it establishes the individual compensation levels for Company executives.
Executive Compensation Policy - ClearOne Communications, Inc.'s
compensation goals for executive officers are as follows:
o To attract and retain quality talent
o To use incentive compensation to reinforce strategic performance objectives
o To align the interest of the executives with the interests of the
shareholders such that risks and rewards of strategic decisions are shared
All compensation is tax deductible for the Company, except for the
compensation that qualifies for incentive stock option tax treatment.
Base Compensation - The Committee believes that executive officer base
compensation needs to be competitive with market rates, and makes salary
decisions in coordination with the CEO. The executive officers received salary
increases for fiscal 2002 that ranged from 4.5% to 20.0% from fiscal 2001 base
pay rates, excluding those executive officers that joined us during fiscal 2002.
The CEO's base pay changed 12.5% from fiscal 2001 to fiscal 2002.
Quarterly/Annual Bonus Plan - The fiscal year 2002 annual bonus plan was
developed to reward executives based on meeting or exceeding certain internal
financial objectives that were created by the executive team. The Committee
believed in fiscal 2002 that executive base pay was compensation for achieving
publicly stated targets. The financial objectives were established in the
beginning of the fiscal year and were based on the Company's profitability.
Objectives were established for each fiscal quarter, together with an annual
objective. If a quarterly objective was met, a bonus was paid for that quarter.
If a quarterly objective was not met, then no bonus was paid. Executives were
not allowed to make up a missed quarterly bonus based on subsequent performance.
A significant portion of the bonus pool was set aside for annual financial
objectives. Two quarterly objectives were made and bonuses were paid for those
quarters, including to the CEO. The annual internal financial objective was not
met, and no annual bonus was paid to any executive, including the CEO.
Long-Term Incentive Compensation - The Compensation Committee uses employee
stock options for long-term executive compensation as a means of achieving the
compensation goals previously described. Options are granted under the Company's
1998 Stock Option Plan (the "Plan"). The Compensation Committee, in consultation
with the CEO, determines the number of options granted to each executive.
Factors bearing on the number of options granted to an executive include his or
her position, individual performance, and contribution to the Company's overall
performance.
15
Option grants under the Plan permit a recipient to purchase shares of
Company stock at a fixed price (the market price on the date the option is
granted). Options typically vest over five (5) years, and the number of shares
vesting in a given year is contingent on the Company achieving particular
earnings goals in each year. Certain options granted to named executive officers
vest in full after completing six years of service with us, and others vest in
full after completing 9.75 years of service with us, except that up to one-fifth
of the shares subject to each option may vest upon completion of each year of
service with us if specified earnings per share goals established for the year
are achieved. Vested options must be exercised at least 90 days after leaving
the Company.
Employment and Severance Agreements - The Company has not entered into
Employment Agreements with any of its executives. All officers of the Company
are employed at will and can be terminated without cause. All employees of the
Company have signed Confidentiality Agreements to keep certain information
confidential.
The preceding Compensation Committee Report and the Company Stock
Performance Graph (set forth below) will not be incorporated by reference into
any of the Company's filings, past or future, that may be made pursuant to the
U.S. Securities laws.
Respectfully submitted by the members of the Compensation Committee.
Edward Dallin Bagley
Brad Baldwin
Harry Spielberg
David Wiener
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STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) to ClearOne Communications, Inc.'s
shareholders during the five-year period ended June 30, 2002, as well as an
overall stock market index (NASDAQ Composite Index) and ClearOne Communications,
Inc.'s peer group index (Goldman Sachs Technology Index):
[Graph Omitted]
The stock performance assumes $100 was invested on July 1, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gentner Research Ltd. (GRL), was a related limited partnership, formed on
August 1985, in which we were the general partner and Edward Dallin Bagley and,
among other unrelated parties, certain members of his family, were the limited
partners. In 1987 and 1988, GRL sold to us proprietary interests in the VRC-1000
(now VRC-2000), VRC-1000 Modem (now VRC-2000) and Digital Hybrid in exchange for
royalty payments. Royalty expense recognized by us for the years ending June 30,
2001 and 2000 was $3,600 and $16,000, respectively. GRL was dissolved on
February 20, 2001 after consent to dissolution and liquidation was received by a
majority of the partners of GRL. The product line, which incorporated the
proprietary interest, was deemed no longer integral to our product segment. The
following directors and/or executive officers and members of their immediate
families had the following interests in GRL prior to its dissolution:
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Edward Dallin Bagley (Director)....................... 10.42%
The Bagley Family Revocable Trust..................... 5.21%
Robert O. Baldwin (father of Brad Baldwin)............ 10.42%
We also formed a second related limited partnership, Gentner Research II,
Ltd. (GR2L), in which we acted as general partner. In fiscal year 1997, GR2L
sold its proprietary interest in the GSC3000 to us in exchange for royalty
payments. Royalty expense related to product sales with GR2L for the years
ending June 30, 2001 and 2000 was $90,793 and $106,084. GR2L was dissolved on
May 21, 2001 after the completion of the sale of the remote control portion of
the RFM/Broadcast division to Burk Technology. We paid $178,516 to GR2L in 2001,
representing its royalty on the gain on the sale of the remote control product
line. This amount was included in the determination of gain on sale in the
statement of income for the year ended June 30, 2001. The following directors
and/or executive officers and members of their immediate families had the
following interests in GR2L prior to its dissolution:
Brad R. Baldwin (Director)............................ 3.19%
Robert O. Baldwin (father of Brad Baldwin)............ 9.58%
Edward D. Bagley (Director)........................... 6.39%
The Bagley Family Revocable Trust..................... 6.39%
Pursuant to the Terms of a Share Purchase Agreement, effective as of
October 3, 2001, Michael Peirce was appointed to the board of directors of the
Company. This Share Purchase Agreement provides for the purchase of all of the
issued and outstanding shares of Ivron Systems, Ltd., an Irish corporation. Mr.
Peirce was a director and an approximate 82% owner of Ivron Systems, Ltd. prior
to the conclusion of the transaction.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and persons who own more than 10% of a
registered class of our equity securities to file with the SEC initial reports
of ownership and reports of changes of ownership of our equity securities.
Officers, directors and greater-than-10% shareholders are required to furnish us
with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such reports furnished to us, we
believe that all reports required by Section 16(a) were filed on a timely basis.
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PROPOSAL TWO - RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, as independent
auditors for the Company for the current fiscal year, and recommends that the
shareholders vote for ratification of such appointment. Ernst & Young LLP, has
served as the Company's independent auditors since 1990.
During fiscal 2002, ClearOne Communications was billed for the following
services provided by Ernst & Young LLP:
Audit Fees...................................... $148,419
Audit Related Services.......................... $222,205
All Other Nonaudit Services..................... $ 98,447
Audit related services include fees related to the audit of the Company's
401(k) plan, due diligence associated with the Company's acquisitions and
assistance with registration statements filed with the Securities and Exchange
Commission on Form S-3 and S-4 in fiscal 2002. All other nonaudit services
consist primarily of fees for tax related services.
Neither Ernst & Young nor any of its members have ever had any direct or
indirect financial interest in the Company or been connected with the Company as
promoter, underwriter, voting trustee, director, officer, or employee. It is
anticipated that a representative of Ernst & Young will attend the Annual
Meeting and will be available to respond to questions. It is not anticipated
that the representative will make any statement or presentation, although the
representative will have an opportunity to do so if he desires.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS.
OTHER MATTERS
The Board of Directors knows of no other matter to be presented for action
at the Annual Meeting. If any other matters properly come before the meeting, it
is the intention of the persons named in the enclosed proxy to vote the shares
they represent as the Board of Directors may recommend.
It is important that your stock be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return the accompanying proxy in the postage-prepaid envelope enclosed for that
purpose at your earliest convenience.
FOR THE BOARD OF DIRECTORS
/s/ Frances M. Flood
----------------------------------------------
Frances M. Flood, President
and Chief Executive Officer
Salt Lake City, Utah
October 14, 2002